Goldman Sachs on why the EUR/USD down move has stalled, why they think it will resume, and their targets for EUR/USD over the coming months.

Why EUR/USD downtrend has stalled?

1- "In our minds, the EUR/$ down move from near 1.40 just over a year ago to current levels was always about regime change at the ECB, which was set in motion by falling inflation. In short, it seems the Euro down trade was about the ECB moving away from its Bundesbank roots and embracing what - in Frankfurt at least - counts as highly unconventional policy," GS argues.

2- "But the perception of regime change is a fickle thing, especially when it comes to the ECB. In May, core HICP inflation jumped to 0.9 percent from 0.6 percent in April, shaking market confidence that ECB QE would continue through at least September 2016, as announced in January," GS adds.

Why EUR/USD downtrend will resume?

3- "We think that is changing now that oil prices are again on a downtrend. In our minds, it was always a stretch for the ECB to bring annual average inflation to 1.5 percent next year. With falling oil prices, that job gets harder, putting policy doves once again in the driving seat. Our European economics team estimates that a 10 percent drop in oil prices could push inflation down around 20 bps after four quarters, so it seems safe to say that downside risk to this forecast is rising," GS projects.

4- "With that comes a rising likelihood of additional policy action, not unlike the BoJ's upsizing last October. Much like last year, the path of HICP inflation will be important in setting the direction of ECB policy. In that regard, it is worth noting that the drop in oil prices is likely to keep this Friday's flash July headline HICP at 0.2 percent year-over-year, while an unchanged reading of 0.8 percent for core HICP would signal weak sequential momentum. Perhaps more importantly, August brings a favourable base effect that could see core HICP again go lower," GS argues.

5- "It therefore looks to us that fundamentals are aligning just as market conviction is troughing, much like a year ago," GS concludes.

GS maintains its EUR/USD targets at 1.02 in 6-month and at 1.00 in 1-year.

This is via eFX. Yesterday I posted a bearish piece on EUR and was berated for it. As you can see, I never learn ... but rest assured once Mike is In I'll take myself off to stand in the naughty corner for a good few hours, K?